Working capital loans can be used to buy inventory, cover payroll, expand marketing efforts, and even finance the day-to-day operations of a small business. In this article, we review the best working capital loans, how much can be borrowed, how much they cost, and the general terms and qualifications of each.
If you need working capital fast, visit OnDeck. Prime borrowers can see rates as low as 9.99% for their short-term working capital loans. You can get prequalified online for up to $500k within 10 minutes.
|Credit Score: 500+|
Business Revenue: $100K+ Annually
Time in Business: 1+ Year
|Funding Amounts: Up to $500K|
Funding Speed: 1-3 Days
APR: 30% - 50%
|Those who need immediate working capital and can pay back the loan quickly (less than 1 year).|
|Credit Score: No Credit Check|
Business Revenue: N/A
Time in Business: 3 months
|Funding Amounts: Up to $100K|
Funding Speed: 1-3 Days
APR: 70% - 90%
|Businesses with unpaid B2B, B2C or B2G invoices due in the next 90 days. |
|Credit Score: 650+|
Business Revenue: $25,000+
Time in Business: 1+ Year
|Funding Amounts: Up to $500K|
Funding Speed: 1 Week
APR: 10% - 40%
|Borrowers with a solid credit profile who are looking for working capital to grow their business quickly with better rates and terms than short term lending. |
|Credit Score: 500+|
Business Revenue: $15,000+ in monthly revenue
Time in Business: 6+ Months
|Funding Amounts: Up to $250K|
Funding Speed: 1-2 Days
APR: 80% - 120%
|Borrowers who have poor credit and get paid via credit cards frequently. It is an expensive option, and should be a last resort. |
|Credit Score: 660+|
Business Revenue: N/A
Time in Business: None
|Funding Amounts: Varies by revenue and credit score|
Funding Speed: 1 Day
APR: 13% - 20%
|If you need small funding amounts quickly, or are looking for reserve credit lines in case of an unexpected event. |
|Credit Score: 680+|
Business Revenue: Varies, 10%-20% downpayment
Time in Business: 2+ Years
|Funding Amounts: Up to $5,000,000|
Funding Speed: 30 - 90 Days
APR: 6 - 9.5%
|Prime borrowers with collateral and a 10%+ down payment who can wait 30+ days for funds.|
Best Working Capital Loans: In-Depth Overview of Each Option
1. Short-Term Working Capital Loans
Average Annual Interest Rate: 30-50%
Short term working capital lenders are non-bank lending companies that provide loans of up to $500,000 with terms of 3 years or less. If you need a working capital loan that you’re going to be able to pay off within the first year, or if you’re less than a prime borrower, then these alternative loans can be a great option.
Short term loans can fund in as little as 1 business day, which makes them one of the fastest business loan options for a small business. These loans typically cost more than many other options, with APR in the 30%-50% range. However, if you pay off the loan quickly then the total cost of capital is pretty similar to loan options with a cheaper APR.
Who a Short Term Working Capital Loan is Right For
A short term loan is generally right for businesses who need working capital immediately for things like payroll funding or an unexpected expense. It may also be right for business owners who are not prime borrowers, or who lack collateral to secure other types of loans with lower.
How to Qualify for a Short-Term Working Capital Loan
To qualify with a short term lender you will generally need to be in business for 9+ months, have a 500+ credit score, and have annual business revenues of at least $50,000.
Pros of Getting a Short Term Working Capital Loan
- Can fund much faster than a traditional commercial loan or SBA loan.
- Can qualify without great credit.
- Can potentially get approved after only one year of business operation.
Cons of Getting a Short Term Alternative Loan
- APR is much higher than a bank loan or other traditional sources of financing like SBA loans.
- Requires a personal guarantee and most lenders will place a blanket lien on your personal assets (but this is true of many other types of working capital loans as well).
Our recommended short-term working capital loan provider is OnDeck. They offer short term loans up to $500K with terms of 3-36 months. You can qualify if you have a 500+ credit score, have been in business for at least 1 year, and have $100K+ in annual business revenue. You can prequalify online in just a few minutes.
2. Merchant Cash Advances
Average Annual Interest Rate: 60%-80% or higher
A merchant cash advance is when a business gets a lump sum advance from a lender in exchange for a daily share of their credit card sales. Personal credit and collateral are not as important of a qualification as they are with other financing options. The most important thing to your loan provider is how much credit and debit card revenue your business makes in a year.
In general, most companies pay back a merchant cash advance within 4-18 months. This is entirely based on your credit card sales because your repayment is a percentage of your daily credit card receipts.
While you can be funded in as quick as 1 day, this is an expensive form of financing which typically has an APR of 60% – 80%. We recommend a merchant cash advance as a last resort financing. For more on why, read our article on MCA vs business loans.
Who a Merchant Cash Advance is Right For
If you’re a retailer or if you’re primarily paid via credit and debit cards, and your credit makes it difficult to qualify for other financing, then this may be the right option for you. We don’t typically recommend a merchant cash advance because of the cost and potential strain on your cash flow, but if you’ve exhausted other options then it might be worth taking a look at.
How to Qualify for a Merchant Cash Advance
To qualify for a merchant cash advance you must be doing $2,500 in monthly credit card sales. You’ll also need a credit score of at least 500 and be in business for a minimum of 3 months.
Pros of Getting Money Using a Merchant Cash Advance
- You don’t need any collateral, you just need consistent credit card sales.
- Can be accepted with poor credit.
- Can be funded quickly (1-3 days).
- You only pay in proportion to your credit card receipts. This means that if you have a bad sales month, payments could be lower.
Cons of Getting Money Using a Merchant Cash Advance
- Very expensive.
- Daily repayments can cause a cash flow strain if you’re reliant on your credit card receipts.
If you’ve exhausted other financing options and decide to get a merchant cash advance then we recommend Credibly. Once you have monthly revenues above $15,000 and have been in business for more than 6+ months, Credibly can get you funded within 48 hours.
3. Peer-to-Peer Business Loans
Average Annual Interest Rate: 10% – 40%
Peer-to-peer (P2P) business loans are working capital loans that are funded by willing individuals or institutional investors to you through an online marketplace. These sites allow you to go online, provide some basic personal and business information, and get a loan quote instantly. You can typically get your funding in 2 weeks or less. These loans generally work the same as short term alternative loans, but have longer repayment terms and lower rates. They also have higher minimum requirements.
Who a Peer-to-Peer Business Loan is Right For
If you’re looking for quick financing and have a solid credit profile then this could be a good option for your business. This loan is for borrowers that don’t want to deal with the headaches of an SBA loan application but could probably qualify for an SBA if they did apply. Peer-to-peer business loan providers are not the place to be looking for a bad credit loan.
How to Qualify for Peer-to-Peer Business Loans
While it’s easier to qualify for a marketplace loan compared to an SBA loan or traditional commercial loan, you still have to have good credit (600+). For business marketplace loans, you must be an established business generating a decent amount of revenue.
Pros of Getting a Peer-to-Peer Business Loan
- This is a fast way to obtain affordable capital (1-2 weeks).
- Lower credit score (600+) required than if applying for an SBA or traditional bank loan.
Cons of Getting a Peer-to-Peer Business Loan
- Loan amounts are lower than SBA or traditional bank loans.
- Higher interest rates and lower repayment terms than SBA loans or traditional bank loans.
Need Up To $100K?
Need More Than $100K?
4. Invoice Financing / AR Financing
Average Annual Interest Rate: 30-60%
Invoice financing allows small businesses to convert, for a fee, outstanding invoices into capital. Basically, instead of having to wait to collect on future invoices, AR financing allows a business to get working capital right away. Invoice financing is a quick and flexible way to get a short-term business line of credit and bridge cash flow gaps. You can get financing for unpaid customer invoices due in the next 90 days.
AR financing is similar to invoice factoring, but faster and more flexible financing. Invoice factoring is a good solution if you’re looking to outsource your entire accounts receivable process, but invoice financing is better for you if you just need a short term fix for a gap in your cash flow.
Who Invoice Financing is Right For
Invoice financing is a good option for businesses with unpaid invoices that are due in the next 30, 60, or 90 days who need to fund a short term cash flow gap.
How to Qualify for Invoice Financing
To qualify you need to have unpaid customer invoices due in the next 90 days, have been operating for at least 3 months, and for some providers you’ll need a credit score of 530+. Fundbox, our recommended provider, doesn’t require a minimum credit score.
Pros of Using Invoice Financing
- Can get money fast.
- Minimum credit score is low or not required.
Cons of Using Invoice Financing
- Only available to companies that invoice their customers.
- Cost can become more expensive than other financing if it isn’t paid back quickly.
- Must have customers who have been reliably paying their invoices for at least a few months.
Need Up To $100K?
Need More Than $100K?
5. Small Business Credit Cards
Average Annual Interest Rate: 15 % (some credit cards also have an annual fee)
Credit cards have a reputation for being an expensive form of financing, but 37% of small business owners use credit cards as a source of working capital for their business. This is because small business credit cards are actually a pretty inexpensive form of financing compared to other small business loan options. Credit cards can also offer a string of benefits such as earning travel rewards or cash back on purchases.
The average interest rate is around 15%, and some credit cards offer 0% interest for a limited time (usually about 12 months) as a promotional incentive. Technically, you could borrow for free on a credit card if you accrue and pay off your balance before the end of such a promotional period.
A credit card may also allow you to transfer high-interest debt onto a lower interest credit card with a balance transfer. If you use a credit card that has a rewards program, you can earn cashback or points with every purchase. The best small business credit cards offer both introductory rates and rewards.
Credit cards are usually best suited for regular operating expenses. They can even be given to key employees to cover their work-related expenses. You don’t need a corporate credit card to issue cards to your employees, but you may way want to put in place a company credit card policy.
Who a Small Business Credit Card is Right For
Small business credit cards can be a good working capital option for any business but are an especially good option for newer businesses that don’t have a lot of financing options. They could also be the right fit for businesses looking to take advantage of no-APR introductory periods to get free short term financing.
How to Qualify for Small Business Credit Cards
To qualify for a good credit card, you’ll generally need a credit score of at least 660. Your revenue and time in business is not important to qualify for most cards but could impact what your credit line will be.
Pros of Small Business Credit Cards
- Credit cards have relatively low-interest rates compared to many other types of financing.
- It’s relatively quick and easy to get a business credit card.
- You can earn cashback or rewards if your card has a rewards program.
- You can take advantage of 0% interest promotions.
- Can lower costs by transferring high-interest debt to your credit card with a balance transfer.
Cons of Credit Card Financing
- The financing amount is much less than other forms of financing.
- Balances can pile up and interest can increase if you can’t pay your balance in full each month.
- You must have a personal credit score above 660 to qualify for the best credit cards. (Check your score for free here.)
Best Overall Business Credit Card
Best for Airline Rewards
6. SBA Loans & Traditional Bank Loans
Average Annual Interest Rate: 5.75-9%
SBA loans often have the lowest rates and longest terms of any working capital options, making them very affordable month-to-month. The reason the loans can have such favorable terms is that the Small Business Administration (SBA) guarantees that it will pay the lender up to 85% of the loan should the business owner default. It is not the SBA that actually provides these loans. SBA lending partners, such as banks, community development organizations, and microlending institutions, actually issue the loans.
There are several types of SBA loans, but the most common one is the standard 7a loan. The 7a loan can be used for working capital, buying a business or a franchise, refinancing debt, real estate, and any other valid business purpose. You borrow up to $5 million with a 7a loan, and the standard term is 10 years. SBA 504/CDC loans are available for borrowers who want to purchase commercial real estate, equipment, or machinery.
Traditional banks generally offer a lot of different types of loans, including SBA loans, to help businesses get the financing they need. The majority of these loans are for prime borrowers with established businesses. They often will require some collateral to secure these loans.
Either of these loan options will most likely be your cheapest solution with the longest repayment period. They do, however, take much longer to fund than any other option on the list (30-90 days).
Who an SBA Loan is Right For
SBA loans and traditional bank loans are typically right for prime borrowers who can be patient when receiving their funds. Because these loans have the lowest rates with the longest repayment terms, they are ideal if you qualify and can wait to be funded for 1-3 months. Even SBA Express Loans (SBA working capital loans under $350k) can take a month or more get funded.
How to Qualify for SBA Loans
To qualify for an SBA loan or traditional bank loan, you will typically need some or all of the following:
- Credit score of 680+ (check your credit score for free here)
- 2+ Years in business
- Be a profitable business trending upward
- 10-20% Downpayment
Pros of Getting an SBA Loan
- Lowest interest rates of all financing options.
- Typically has the longest terms of all financing options.
- Low monthly payments (see how low with our SBA loan calculator)
Cons of Getting an SBA Loan
- Only an option for prime borrowers.
- May require a large amount of collateral.
- Takes the longest amount of time to get funded (30 – 90 days).
We recommend applying for an SBA loan with SmartBiz. They can fund working capital SBA loans up to $350K within 30 days. You can fill out an online application and be pre approved in about 10 minutes.
Bottom Line: Working Capital Loans
For a growing business, working capital is absolutely critical. We’ve discussed the best working capital products for small business in this article, and most businesses will find a good fit with the companies above. If you’re like to see more option, browse our full catalog of small business financing articles.
OnDeck funds small business loans up to $500K within 1-3 business days. You only need a 500 or greater credit score, be in business for at least 1 year, and annual revenues of $100K+ to qualify. Ondeck offers repayment terms of 3 months to 3 years. Their online application is easy to fill out and you could qualify within minutes.